K.S. Subbiah Pillai and Co. (India) Pvt. Ltd. vs Commissioner of Income Tax

R. Jayasimha Babu, J.—The questions referred at the instance of the assessee are :

Whether on a true construction of the Explanation (baa) to Section 80HHC of the Income Tax Act, 1961, interest, rent and commission are to

be deducted from export profits or only net receipts, if any, after taking into account the payments?

Whether on a true construction of the Explanation (baa) to Section 80HHC of the Income Tax Act all the net receipts by way of interest, rent

and commission should be aggregated before deduction and only the net balance, if any, should be deducted from export profits?

The second question does not arise from the order of the Tribunal. There is no discussion of that aspect either in the assessment order or in the

order of the Commissioner. The claim of the assessee was confined to the amount deductible towards interest. The second question is, therefore,

returned unanswered.

So far as the first question is concerned, the Explanation to Section 80HHC in Clause (baa) defines ""profits of the business"" for the purpose of

that section. That clause reads thus :

(baa) ''profits of the business'' means the profits of the business as computed under the head ''Profits and gains of business or profession'' as

reduced by-

(1) ninety per cent. of any sum referred to in Clauses (iiia), (iiib) and (iiic) of Section 28 or of any receipts by way of brokerage, commission,

interest, rent, charges or any other receipt of a similar nature included in such profits ; and

(2) the profits of any branch office, warehouse or any other establishment of the assessee situate outside India.

The clause does not refer to net interest. It refers, inter alia, to the interest included in the profits and gains of the business or profession.

Regarding the first question there is considerable confusion. The Assessing Officer, according to counsel for the Revenue, has not deducted the

amount of interest assessed under the head ""Income from other sources"". The appellate order proceeds on the basis that there has in fact been

such deduction and that such deduction could be made from the profits even though the interest received is not assessed under the head ''Profits

and gains of business or profession''. That view of the Commissioner has been affirmed by the Tribunal.

Clause (baa) under the Explanation to Section 80HHC defines profits of the business as computed under the head ""Profits and gains of business

or profession"". The deductions to be made are from the amount of profit so computed and not from the amount computed under any other head of

income of that assessee. The reference to ""such profits"" in Sub-clause (1) of Clause (baa) can only be to the profits of the business computed

under the head ""Profits and gains of business or profession"". Addition of prefix ""the"" to ""profits"" in Clause (baa), while referring to the profits and

gains of business or profession makes it clear that it is only the amounts already included in that computation which are now to be reduced to the

extent of 90 per cent., if those items are included in Sub-clause (1) of that definition.

Interest paid and claimed as deduction in the computation of profits and gains for business, cannot be set off against interest received and

computed under income from ""other sources"". What has been said about interest is equally applicable to rent and commission included in the

computation under the head ""Profits and gains of business or profession"". The first question is answered against the assessee and in favour of the

Revenue.